Q1 2020 Earnings Call
Good morning, Thank you all for joining.
Mind or this conference call and the related presentation may include forward looking statement, which reflects management's expectation about teacher, then overall operating claims and performance.
These forward looking statement I made as of today and I'm not guarantee they involve risks uncertainties and assumption.
No assurance <unk> actual results will not differ materially from our expectation for discussion of these risks and uncertainties. Please see the risks described in our most recent form 10-K and subsequent filings with the FTC investable no obligation to update any forward looking statement.
They also discuss non-GAAP financial measures during todays call reconciliations of these non-GAAP financial measures may be found at the end of our earnings presentation.
[laughter].
Welcome to that's called <unk> first quarter results conference call.
All participants will then I'll listen only mode until the question answer session at that time to ask a question.
Star One today's conference is being recorded if you have any objections you may disconnect. At this time now I like to turn over the call to your speakers for today.
I'd Flanagan, President and CEO agenda, ASCO, Loren Starr, Chief Financial Officer, common metals, senior managing director and head of global institutional and private markets.
Andrew Schlosberg senior manager director and head of Americas, and Greg Mcgreevey Senior managing director investments Mighty Mr. For that Flanagan you may begin.
Thanks, very much thanks, everybody for joining.
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So you will total flows during the war with no flows always really dollars despite extremely well with Chile, Walter gross flows increased nearly 40% to a record he says.
Dollarss, resulting net inflows into her first terrorists or institutional trying to JV money funds have each yes.
Particular, Walter investment performance or remain strong capabilities with high demand, which [laughter] international equities emerging markets in the numbers exchanges.
In light of current operating environment.
Ours is working for a long strike.
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That is our lives to shareholders.
Last year after $500 million efficiencies.
Transaction grading our previous deals we entered 2020 this was achieved its harder.
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So to start Oh that makes you crisis executing those Patrick walravens across our expense base.
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Strengthen our position.
We see these actions crazy roughly.
80 million.
Oh <unk> airport expense savings relative to guidance, we previously provided for 2020.
Well, it's variable compensation for discretionary expense areas Laurel like work until later on coal.
Importantly, yodlee short term title losses.
I'm sorry integration.
Leveraged our spirits is right for Christmas season scale into our operating platform.
I'm confident experienced team the track records.
In addition to lease expense measures, we believe is her.
Flexibility Joe's.
Oh I'm certain market areas.
Those first hirschmann I'm talking to you also so.
Including the recent approval for a $25 million.
Real estate strategies I would discussions.
Across our alternative platform.
These investments and others that may follow because of the stream or worse.
Okay.
We also plan to redeem approximately $200 million to see sample from certain of our lesser et cetera.
Sure.
Finally, reduce our quarterly Donna.
<unk> 31 cents for sure.
So for sure.
We will establish is sustainable.
Vials $3 million.
Wireless touch more on our decision to reduce.
<unk> practice rollout this issue.
Our liquidity as good as is.
Okay.
Yeah protection should the market injury from here.
It's clear that 2020 turned out to be much fortune. Once you go to anyone of those anticipated.
The buying actions will help us maintaining financial flexibility.
Liquidity first.
Sure.
Certainly bar, which will allow us to operate the should strike.
So with that let me try <unk>, who will run through the diesel tells the results.
Oh, Thanks, Marty so before I cover a the topic of flows expenses in capital management I want to pause on the investment to perform it's a slide which a slide five of the deck that we are posted on our website a you'll see our long term investment performance does remain strong at the end of March we reported 60% and so.
89% of our capabilities in the top half appears for the five year in tenure, a time periods and that's up slightly from the end of 29 chain.
He talks about our diversified global platform with exposure to the industry's key growth areas. Our platform is aligned with these growth trends. It's in these areas that we're delivering strong investment performance, particularly in global emerging markets and international equities global fixed income liquidity and alternatives.
So next let's move on to flows as you can see on slide seven or we had net inflows in our institutional channel and we continue to see positive net long term flows in Asia Pacific a positive net flows of 11.2 billion.
Institutional business were driven by the partial funding of the previously disclosed amalgamated solutions. When are we also saw inflows into our stable value products.
Well the other active fixed income mandates. Additionally, we had just under $1 billion in that long term inflows into our China joint venture driven by our bells fun, but also across equities and fixed income products I call is going to talk a little bit more about institutional business a bit later.
Our retail flows do remain challenged in the quarter, you'll see 30.3 billion and that retail outflows driven bite you Gs net outflows of 6 billion, which did include 1 billion from previously disclosed to you do you have closures.
We also saw outflows in the old fly global equity funds senior loan funds, UK equities and high yield Muni funds.
Are you chip product range and U.S. weighted to do a domestic U.S. equity and that was impacted by the flight liquidity.
In the period offsetting this was $2 billion and net inflows in our European commodities, each yes, particularly in our physical gold.
In fact, we were number two in terms of that new assets or new flows in each yes in India market.
And Oh, you'll hear Andrew Schlosberg talk a little bit more about the wealth management Americas business, a little bit later in the put in the presentation.
So next let's move to revenues and expenses are turning to slide eight you observe that our results were impacted by the reduced market value of our a U M O. The decline in revenues in the quarter.
Was driven by lower average or you one less day in the quarter then in Fourq, you between 19 and lower performance fees relative to the prior quarter. It's important to note that the impact of the March a market declines and the flights to liquidity, we're actually quite impactful to our mix and a level that you limit.
We entered the second quarter.
In fact, the pro forma net revenue yield reduction due to market and mix in the month of March alone approximately two basis points and net revenue yield.
You'd see that on a go forward basis.
In addition to the impact of the market declines in the period, the weakening of the pound and euro against the U.S. dollar in Q1 impacted operating expenses, we saw operating expenses flex down in the period by in that 29 million and that was comprised of 40 million dollar market combined market, an FX impact, which was offset by net.
11 million dollar increase and other expenses largely in compensation as you know compensation expenses typically higher in the first quarter due to the seasonality of payroll taxes.
Oh, that's so in light of the uncertainty in the markets any economic environment, Oh, we have undertaken a thoughtful review of our operating expense base that focused on what we can do in the near term to minimize costs.
We've determined that we will freeze hiring for the time being additionally were aggressively managing discretionary expenses and you revealing other aspects of the firm's expense base.
I remember last quarter, we offered quarterly run rate operating expense guidance of 755 million a quarter. We now expect our quarterly operating expenses to be approximately 80 million.
Per quarter lower on average for the remaining quarters of 2020, largely due to the lower compensation as well the reduced jumei and marketing line items.
These expense numbers were based on market on FX levels as of March 31st and they will of course fluctuate up and down based on seasonality in the nature of certain areas of spend.
Well a portion of the reduced expense base is tied to the temporary suspension of travel well then consulting and other spending affected by this unusual environment. We remain highly focused on identifying additional discretionary and structural levers that we can pull such that we deliver most effectively and efficiency apparently for our clients.
Within the president environment and longer term.
Let me move on to slide nine and just briefly point out a that non operating factors impacted our NPS by about 14 cents that was driven by noncash mark to market losses on our seed portfolio as well as an elevated tax rate this quarter.
29.0, sorry, the 27.9% in Q1 tax rate that was elevated the two primary reason so.
Our lower share price resulted in less of a deduction on divesting of shares and the fact that our seed capital domiciled in Bermuda, where there's no tax deduction for the CE mark to market losses, or we would expect the tax rate to returns the 23% level going forward.
So moving onto a slide 10, let's get the capital management, you'll see that we have a credit facility balance.
Although approximately 500 million up you ended the quarter, reflecting the typical Q1 draw down on our facility to fund annual bonus payments as well as a we also had a 190 million a prepayment of a portion of our forward contract liability with respect to the share repurchases, we made last year.
As I already mentioned, we've determined to reduce our common dividend to allow us financial flexibility and to strengthen our balance sheet. This was a very thoughtful decision and one that we believe in both proactive and prudent a in the present environment.
Want to spend just a few minutes walking through some of the considerations that led to this decision.
And first in light of the present, a uncertain market environment. It's a reduction in dividend allows us to preserve liquidity and enhance financial flexibility. It also reflects a more balanced payout ratio given lower expected earnings as a result for the March ending a U.M. level.
This action around our dividend also allows us to target the common dividend payout ratio about 40% to 60%.
Overtime and as market conditions from the enhanced liquidity will give us flexibility to further strengthen our balance sheet with an eye towards improving our leverage profile and continuing to invest in the business for growth.
We're committed to a sustainable dividends and the return of capital to our shareholders do not anticipate additional share buybacks in 2020.
Reducing our common dividend leaves us with ample capacity to buy back stock in the future <unk>. However.
[noise] so in the combination of the dividend reduction continued focus on expense management and our operating cash flow generation creates ample cushion for liquidity and provides us with financial flexibility, we generate significant cash flow each quarter and I wanted just take a moment to walk you through a few key elements on our cash flow.
As a reminder, net income it includes some fairly significant noncash elements, particularly this quarter with 74 million a noncash seed money market declines. In addition, net income includes deductions of 48 million for noncash depreciation and amortization and 47 million up or non cash share.
Based compensation expense.
Also as part of our efforts to improve our financial strength, we're looking to redeem about a 200 million of seed money investments all done without impacting our clients that will be done in 2020. It's also important to keep in mind as I mentioned, a moment ago that in the first quarter.
We pre paid 190 million or the forward share repurchase liability in connection with.
In connection with putting additional collateral or we have the remaining 220 million obligation, which is net of 90 million of collateral that we posted which will be fully settled by April 2021.
And then finally and perhaps most importantly, we have no debt maturities until Q4 2022.
Combination of our of our actions this quarter puts us in a position to be thoughtful about managing our capital structure, improving our leverage profile.
And also a including the ability to reduce our revolver borrowings to zero and to pay off our 2020 maturity.
I would not committing to any specific actions right now in our capital structure. It would be premature, but our objective is to maintain flexibility too volatile environment. Nevertheless, we feel good about the optionality that we will have to strengthen our balance sheet, while further improving liquidity. So in summary, we remain prudent and diligence in our approach to expenses.
Capital management and stuff that we're taking will further strengthen our balance sheet and provide us with enhanced liquidity managed through the market volatility and uncertainty, while allowing us to create flexibility for investment and growth.
In the future for business.
So let me now I'll turn it over to call and well have a discussion about our institutional business College.
Thank you Laurie I would like to Echo my colleagues hopes that all of you were saying healthier safe.
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Our institutional business, that's strong quarter.
Lines by and large it's taking a measure that long term view.
Some objectives, we realized gross flows of 26.9 going in the quarter with mandates funding in a variety of strategies, including custom solutions stable value. That's me great. They did in real estate.
We didn't see stayed largely in line with prior quarters at 15.7 billion largely result.
Decisions. These results allowed us to realize long term net flows of 11.2 billion in the first quarter.
We also saw significant net flows of 26.3 billion into liquidity partnerships as clients look since your financial flexibility through the crisis growing share of that slows resulted from directly cuisine mandates, which will provide us with the opportunity to help our clients' needs. It first investing objectives as it didn't really transitioning these assets into other strategies.
Our walnut funded pipeline remains robust at 31.9 billion.
Focus on becoming trusted partner stories juvenile clients has resulted in wins across a variety of strategies, including factors solutions alternatives and fixed income.
This result compares favorably to prior periods as it's twice so I'm not funded pipeline a year ago, this quarter and as a 20% increase overall pipeline in the fourth quarter.
We're especially storage that institutional clients that remain engaged the crisis. That's 14 billion total mandates the we're walking in the first quarter.
As a result will be plug in 19 crisis, and social distancing measures across the globe, we've transitioned to a completely digital engagement model and institutional clients respond but.
We posted 20, Webinars and webcast to try to get to 2000 clients globally. Our weekly Mark market pulse weaponized had been particularly impactful as we responded declined areas of interest, including investing that applications of Copel Nike updates on global financial markets government and regulatory intervention and implications for chief investment strategist.
Institutional clients increasingly looking beyond the crisis I understand what's next for their portfolios and member plan.
Why is it expressed interest in the diversity of strategies, including multi asset that's just try to real assets you m. equity in liquidity.
We're also working closely with us and that's what solutions team to engage clients on changes to the investment or it isn't portfolios and are introducing invesco vision, our portfolio analytics tool to these conversations to provide real time modeling of various yes.
We believe that supporting appliances partners you all environments will allow us to deepen these important relationships and ensure clients excess.
Now turning to the end useless to discuss our Americas wealth management and global Pts business overview.
Great. Thanks.
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In the first quarter and deliberate with much success again multiple market environments.
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The distribution.
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Top talent.
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And tools to the marketplace, our go to market strategy in the North American.
Platform in adviser marketing.
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Capability.
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100%.
Oh virtual units client engagement, we've been operating in this format.
Early March were deploying the distribution strategy now digitally with really strong success and feedback over the past six months.
It can at times to offset the winners.
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Just a few Scott.
The relevant.
We've done over 100000.
With wealth management platform.
We've had over 200 proactive.
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So the team looks forward to being able to combine.
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Capability and our.
Next generation distribution so now.
Q1 results.
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First we saw very strong.
Q1.
Following the integration of our distribution team.
In 2019 $20.3 billion of Q1 gross.
That's our best quarter since combining.
One organization and it's 50%.
And our Q4 results we saw.
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Equity.
Thanks.
And if you could see on the chart the March acceleration was mark.
Mark.
Of money in motion in a retreat to Kashi Conservative strategy, maybe an early stage equity in risk asset reallocation.
All sort of.
This rosales forward in March the net flows in Q1 were really.
In January.
Increasing nearly 30% over the Q4 monthly average.
And improvements are recorded.
And in particular fixed income.
The positive net flows during.
However March change the picture.
Industry.
Declined.
On space by over $300 billion, which represented a 2.7% monthly decline to february's ending.
Our March results.
Industry averages that negative 2.5%.
Yes.
Clients.
A hearty marks.
We are market leaders.
And we have.
I suppose international equity and bank loans, which together were responsible for nearly half.
March.
We believe these market leading strategies or some of the same that are positioned to benefit from heavy reallocation.
Recent declines.
And Mike.
On to just a little color since the last week of March were seeing moderate quite a bit.
First stage government intervention market stabilizing.
Early stage reallocation that benefited our gross.
Well not at the same level.
Just like they remain 10% stronger than Precrisis January February levels.
5% higher than Q4 on the retention side, it's stabilizing as well.
He percent better than the month of March but.
Hello.
20% primarily.
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I continue to have a higher than normalized redemption in the meantime.
Oh, perhaps not just a moment or two on.
Before I turn it back to you Marty.
Yes.
Yeah.
I did want to get your sense of the global franchise and our results industry wide.
Sure.
Very well pretty well in the market volatility and liquidity squeeze on a path.
Weeks, Oh, we believe the structural advantage.
Notably in liquidity.
Management benefits.
I should encourage high demand as investors cautiously reality, we back into market.
Invesco, we're ready for the potential acceleration in those flows our business is 250 billion.
I'll give the top status and smart beta and provides us with rescale liquidity at most importantly long term track records for managing through volatility diversifying targeting growth and the distribution profile.
Existing large users in the U.S., well, but nice channels or one of the fastest growing use it platform for them.
And strong exposure to emerging channels and digital well model portfolios.
You know puts us in a really strong position so with that backdrop, just a little more.
I mentioned on the global franchise.
We had a very strong starts.
In flows around two and a half billion dollars, which was a great continuation from the 16 billion positive net flows were reported in 2019 like our active funds the second half the quarters on major declines as the industry.
Levels that impacted our business as well I'll be resulted in negative $6 billion.
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Locally, but that's inclusive of the 1 billion Lori mentioned from the pre announced closures and yeah. We were negatively impacted by smart beta fun in key sectors.
Which were impacted as investors look to de risk.
But it was particularly focused on a few fun.
Large cap equity bank loans in emerging markets fixed income, we had several bright spots Hughes growing by $6 billion in the quarter and alternative.
I led by our commodity and currency strategies and all of that that net flows improved significantly from the heightened market volatility at the back ended the quarter and we're seeing our U.S. range improved by around 75% on the net flow basis, and we turned positive in a few important.
Categories in taxable and alternative suites I'm in early signs of people were turning to smart beta strategies and EMEA has remained strong.
You didn't.
Eric.
Post the first quarter, so with that Marty I'll turn it back to you.
Thanks, Andrew and not performing as you would actually just a section.
We had a good work and what was incredibly challenging macro environments.
The key points take away from the conversation we chose huh.
The areas.
There continues to be aligned.
Remark demand is.
That's right.
For those matters, we look forward.
Total how close are they go $2 billion, an extremely challenging we're really reflects our first platform for the long term flows and areas. We can sitters feature.
Average assets under management.
Yes.
Q4.
Hi.
Since March.
And margins are forms and higher than the same period, a year ago reinforces our conviction.
Oh climber and benefits so skill and finally.
<unk> expenses capital <unk>, what are the allowed us to bill.
Whether the facility to support or long term growth.
With that when we open to doing that.
At this time it sounded like to ask Scott Audio question. Please press star one you'll be announced prior to asking your question. Please pick up your handset when asking your question too, but well if you know request. Please press star Q1 moment, but the first question.
Our first question comes from Dan Fannon with Jefferies. Your line is hoping.
Thanks, Good morning, I guess my first question is on the balance sheet and the dividend also just thinking about the actions today and understanding that your solidifying a that for going forward, but I'm wondering how this impacts the institutional business.
Quite clients are looking at your financial stability at the parent and can you hear about large mandates, particularly in areas such as fixed income as you remember from the financial crisis for no. Other he industry. This was an issue in terms of winning business really changing it can you talk about how.
Claims or you know engaging with you and asking bringing.
The apparent acquity angle or the balance sheet strength, and how that may or may not impact that kind of business trends going forward.
Yeah, Yeah, let me make a couple of comments I'll turn it over to a column in particular the whole because you know the balance sheet strong you know we too are websites.
Robert in particular and that all the other actions that we talked about absolute focus on expenses.
In this uncertain environment.
Three of capital.
From a.
Seattle as.
Again, our institutional business, there's never been stronger it just continues to.
Your growth so.
These actions are just around.
It's just not the topic first of all of them over let's say, we probably wouldn't start to that column.
Yeah.
No I think you know that Marty obviously institutional clients do carry very much okay very much about the financial stability.
It is not then it topic.
One coins mine lives now I think they feel that just goes is very strong company and Tomorrow's point I think we think the actions that we've taken a date honestly reinforce that and would expect that are assisting clients.
<unk>.
Yes, yes.
Which is really important where we're trying to make.
We go to scale in this organization, we came into 2020.
Hi, good margins in the industry sort of whats your very different cash flow.
And the number of your competitors and.
Again that with all the other actions we're taking the.
The current very strong yeah, we're just trying to be very groups at this moment.
Understood and I guess as a follow up I guess, the 80 million at quarter end additional savings you. It seems like some of that is kind of run run rating. We some of the business practices in place around you know travel and other things I guess.
And also market related with the U.S. So if you could maybe talk about specific kinda removal permanent removal of course is temporary and you can kind of how if this is head count if there's certain areas outside of just kind of people staying home and markets being lower.
Yeah. So let me start on that then I got a true towards so.
Talked about really isn't last were Oh, sorry.
We are ready to ensure our eyes Sue you know the driver.
So operator.
You should see this a platform is platform type undertakings so that is.
That's really where maybe additional scale.
That slowed down quite frankly in this first quarter isn't turned our attention to making sure that.
All our employees to say that they were able to work from home that because there is what our client server lives. So you need actions to do just you're talking about it but they should do a crisis has hit the brakes.
Sorry, and we're rooting systems outspent by always.
Hi, just making sure they're serving their clients and that's the dog Yeah. We're now at a place where we're back so we'll see.
Oh, you know going forward I believe this program.
Sorry, that's where you're going to take those longer more permanent type successes.
As an organization, but after the point is we know how to us where to start talking about proven time and time again and last year without ever competition dealer. Its just not an idea or you know how to do it and you have a proven truck or.
Mark.
The only thing I would add is I mean, one of the things that.
No one's position is that.
This is cobot situation that everything is gonna be back to normal right and so I think we're learning things as everyone is around you know what how we can operate perhaps differently.
And that reflects the whole slew of some of the costs that are sort of business as usual costs around travel and obviously were gotten very good using digital methods for interacting with clients and a and you know how we use space and other things. So I do think there's there's a variety of things that are being.
Looked at and you know that we will continue to explore a with respect to which the operating model looks like going for you know beyond that I think you know right now it we definitely have hit the brakes. We've done. This before this is feel very much like the way we manage through the financial crisis and you can look back to how that worked through but I mean, we you know where we've been very.
Diligence and good about sort of stopping spend around areas that I think we can you know keep keep a handle on a four for some period the bigger opportunity is as Marty alluded to is around some of the structural opportunities around technology operating platform, which we are well down the path of looking at.
Yes, I do want to reiterate last comment.
I tried I like the way, we're operating and I'm sure many organizations.
It is actually going to change how we operate going forward just how we operate this is really the client interactions they have never been more robust.
[music].
We're free or meaningful.
True.
Yes, it's good for our clients is going to the organization.
Just for your very different dynamics added.
Yeah, it would be.
Oh and costs associated with a change going forward.
These answers right now no we don't because frankly are.
Take care of our clients and their business.
As I've got to be a change world and I'd say for better but frankly.
Got it thank you.
Okay.
Thank you all our next question comes from Ken Worthington with JP Morgan Your line is open.
Hi, good morning.
You cut the dividend by half, but it still seems like you're taking a defensive position here given market conditions and outflows I you talked about the preservation of capital in the press release, you talked about not buying back stock this year.
That's it sort of seems like the cut may have been a half measure.
Cut the dividend further or outweighed eliminated all together, maybe why not consider dropping the preferred dividend for a number of quarters in order to strengthen the balance sheet allow yourself to buy back stock and really take advantage of the.
Downturn in the market depth that we see.
Okay I think a good good question you know our decision to reduce our common dividend by 50%. So I was dawn.
You know certainly with an understanding that the environment could we can from here.
No. It wasn't necessarily are working assumption, but you know certainly we're not thinking we're seeing the snap back going forward.
But we don't intend and we certainly don't intend to make another difficult decision like US again, and we do feel confident that this was the right action at the sufficient level to give us the flexibility that we desire.
To manage the balance sheet, even if the environment where to deteriorate from here and Weve stress test this all which ways. So I do think it's important to note that well 2020 is you know emerging to be more challenging than we anticipated. You know we are still operating I've already mentioned from a position of strength. This isn't a reactive move.
Do you know sort of driven by liquidity concerns at all instead, we're proactively addressing the opportunity that we have to improve our leverage profile and to maintain a financial flexibility, which is going to be required to invest in client enhancing and growth capabilities going forward. So we feel comfortable that this was the absolute.
Early enough or that you know the when you were suggesting is sodas are not not needed and of course, we looked at everything we were setting. This was not a a decision taken on you know sort of casually and there was a lot of stress testing involved.
Hi.
And then I think you guys regularly disclosure this quarter to date net flows on these earnings conference calls.
How does seem slip so far in to Q a for long term net sales.
Yeah, I don't think we typically have done that we've sort of stopped that practice a while back 10. So I think we're gonna sort of continue to to not do that just because it's it's still too short of timeframe to really judge.
What is what is going on on you know I think obviously there was March was a horrible month things are better clearly in the way the market is evolving but beyond that I do want to say get into actual numbers.
Okay. Okay, great. Thank you very much.
Thank you. Our next question comes from Brian Fidel with Deutsche Bank. Your line is open.
Great. Thanks, Good morning folks, you're just a clarification around a couple of the guidance points me just the absolute level a b C ratio.
In Q2 down two basis points is that implying a little under 37 basis points do I have that right or is it a different number and then the cost run rate I think you city, if I'm not mistaken EDI lower than the 755. Since this is a second quarter quarterly Ics.
Adjusted expense run rate should be about 675 is that do I have to that's correct.
Yeah. So on the lot of the one yes, 75 is what we're suggesting a sort of the average.
Run rates for.
For the remainder of 20.
2020, and so yeah, we're saying that in terms of the.
Net revenue yields are less performance fees, a that we'd be suggesting you know sort of two basis points off of where where we ended in Q4. So.
So does the guidance that we're providing.
Yeah, I'm, sorry, cynicism, where you ended in Q work he.
Okay, all right now not where we ended for the Q4 net revenue yields.
Yes, so it isn't just trying to get the actual level of the revenue yield that you're talking about for twoq on and on a X performance you basis.
All right well so the actual.
Quarter was the 38.7.
For the quarter. So we're talking about two two basis points less so.
6.70 gets it is 36 months, okay, yeah, there's going to make sure at that a and then just on the you know it sounds like obviously the sales momentum. It's good it's a good story here both on the institutional.
And retail sides, maybe can you talk about which areas institutionally that you're seeing that that sells a momentum and sort of the timing of that 31 32 billion.
One, but not funded pipeline in terms of actually getting.
Getting funded it sounds like the solutions mandates. The I think there's only a few billion left that's included in that.
31 billion pipeline. So maybe if you just kinda talk to the sales.
Momentum on the institutional side and in particular.
Not only we pick that up.
Sure happy to some I think had been strong I'm like I mentioned before.
Pipelines.
Warm up on the pipeline is going in fact is actually growing each of the last.
Five quarters checking so we feel that were being quite responsive to institutional client needs and that's reflected in those and wins.
In terms of when it will find what typically happens is a that pipeline as Lars will largely be funded through the into the year usually takes about.
Two to three quarters or indeed, you get in time to be funded built theres, obviously, some things will tail off beyond that but that's kind of expectation.
And in terms of product.
It really is gonna be quite independent and depending on needs we are seeing.
Strong momentum continued momentum into our solutions. These factors capabilities continue the momentum into alternatives.
Real estate in real assets I.
Continued momentum into various fixed income categories. So in many ways. It reflects the.
The portfolio dynamics institutional clients Oh.
And you have you been able to create institutional products. The Oppenheimer funds, yet or is that still a work in process and what would be the timing of UBS availability for the separate accounts.
So it still work in progress that we are getting increased inquiry, particularly into Kearney bar.
So side, it's not reflected a more mostly in the pipeline as we see it but in the longer term.
No problem that we have this beyond one my funded so these would be things that were among the qualified side.
We're seeing we're starting to see.
Interest.
Yeah, and things in particular, where you've seen so far as a reach outside the platform is global equity emerging markets equity.
Yes, institutionally that is exactly what's happening also goes to the conversation. So there's a lot of interest.
But.
I think that's particularly in Europe, and Asia, Europe, and Asia, I was going to say, yes on the on the Sicad and in Luxembourg themselves product is you're getting traction there on the Oppenheimer said in terms of demand is still strong interest.
It's it hasn't grown dramatically I mean, we are still talking about it you know 100 million in terms of at U.M., but the interest is still there the product and still considered very attractive obviously in the current environment things slow down and that number is with all of the market.
Packs.
Okay, Great I don't know you want to everything right.
No I think you captured it I think the interest is in the areas that you kind of mentioned doesn't you know we're seeing that enters its got to continue to pick up.
Thanks, Yeah, we're pretty excited about the longer term opportunity or the intermediate term opportunity for a lot of the products are that demand is strong and our performance for most products is incredibly strong.
[music].
Great. Thank you.
Thanks, Brian.
Thank you. Our next question comes from Dell Katz with Citigroup. Your line is helping.
Okay. Thank you very much taking the questions I appreciate some of the new disclosure and your Sultan that as well.
First question, just you had mentioned the targeted payout ratio of 40% to 60%.
For the dividend <unk> is that gap, a payout ratio or an adjusted payout ratio.
That's based on adjusted though.
Okay is that a forward 12 month type of dynamic.
That's a forward 12 month type of dynamic yes, absolutely.
Okay, and then just turning to the fee rate for a moment appreciate some of the color from the conversation as well could you break down so the net impact of volumes coming in versus going out in both retail and fixed income you know city market dynamics to the Sykes it seems to be a lot of different moving parts just trying to get a sense of how to think about the few wedo then you'll outsized market moves.
Yeah, I mean, I I thought there's a lot of ins and outs I mean, we had some dynamics where you had your money market was it was a huge.
Flowing in and that's at a lower or lower fee right. You know typically 10 plus basis points, but a lot lower fee rate you had the funding of a significant a you know solutions when which was also sort of single digit a fee rate you had queues coming in which are sort of non fee or driving to it.
It's it's hard to parse all that through that's that's why I provided the guidance just because it was really hard I think for anybody to really understand the full impact plus the obviously you had the market, which was a sort of obviously compressing some of the higher fee a equity components within our mix.
So you know again, it's a it's it's it takes a complicated the fee rate thing and then [laughter], even hard for me to forecast or you know, which is why typically don't do it but we wanted to give you that two basis points. What should we think sort of puts you at least sort of statically, where you where you should be based on March.
Okay, and just one final one thanks, taking all three of this morning in terms of looking at your balance sheet debt went up cash went down how we think about the targeted leverage ratio would there be a function of a real market cap Oh enterprise value well, maybe more more focused in terms of debt to EBITDA, what's a reasonable talk.
Getting when do you think you can get there.
Yeah. So it's a good question, let me, where where as I mentioned, we're not committee at this point in terms of de levering or we are very competent, though that we have the ability to have the financial flexibility to do so you know in terms of what that could mean, obviously, taking our credit facility down.
Five away to zero, you know a eliminating the obligation that's remaining on a the forward purchase of a you know 220 million by April and then finally, you know we have to 600 million that's coming due in November of 2022 under sort of a very dire.
For sort of scenario, a you know sort of going forward, we cover that those requirements handily or through the existing liquidity without further borrowing.
So our focus would be on having the flexibility to to de lever a as a as we come up to those events or maybe even sooner. If we decide that's the right thing to do I think if you were to look at our debt to EBITDA ratio were higher than we are comfortably a wanting to be right now.
You know I think we're sort of would rather see the if I'm just looking at debt to EBITDA, where debt is our long term debt not you know look <unk> provide anything around the preferred at this point you know sort of getting closer to you know sort of one then a quarter times to one times is then you know kind of the long term target that we've had in the past them.
You were not that you know I'm a far away from that number but there is opportunity for us to ER to bring that down further going forward.
No I think the the main point, they're trying to fix is literally.
Right and especially on certain markets.
One of those has the answer is yes.
Well it looks like.
He starts again [laughter].
Most physicians who.
First off.
That's the case or loan or walk and start to recover.
So it gives us off but.
That's to me one of them.
Okay. Thank you very much of taking all the questions. This morning.
It's bill.
Thank you. Our next question comes from Michael Carrier with Bank of America. Your line is helping.
Hi, guys is actually Sean counting on for Mike I'm, just with the pull back in the seed capital can you give us an update on the outlook for launching new strategies and products.
<unk>.
Yeah ill just touch on and then money or Greg or others can I mean, I think we have been.
Very focused on launching products.
To the benefit of our clients around similarly in the area of each yes, Oh, we've been very fortunate to have the seed provided by our clients effectively. So we have not had to put seed and a two to launch those products that that is our preferred method of launching products are generally no. We can't do that with all products. Some.
Some alternative products and others do require some some co investment I think you know as Marty mentioned, we've actually seen partnership with mass mutual really opening up some doors, where they themselves have stepped in certain cases.
To provide cdone co investment or to some of these product launches, which has been which has been really helpful. Because it offsets or you know our need to use our on balance sheets, and I dunno mortgages anything you'd like to that whether that Oh I don't recall in America Congress.
And I want to start yeah.
From a CD perspective.
The product line.
Yep.
And the mutual fund complexes given all the work that we did over the course of last year or two and and consolidating acquisitions.
Oh, right sizing our product line, our seed capital needs.
Fairly limited at this point and as.
Warren said much of it coming from from from clients, where we do have launches on drawing board.
Right.
And maybe call it wasn't going to <unk>.
Sure Im in institutional standpoint, but I think we feel quite comfortable with the support that we received over the years.
Capital standpoint, so I can't think of anything that's that's been slow down <unk>, nor were anticipating going forward I might reinforce that marty's point launch point match unusual it's been a fantastic partner to us and.
And the support that they are showing through in them about strategies, particularly alternatives. So it's been just isn't.
We would expect that relationship to continue to Boston.
<unk>.
Okay. Thanks, and then just going back to flows are you starting it see any improvement in Asia. There are a little bit further along with the dealing with the pandemic.
Yes.
Got it so they were a negative in the quarter right. So.
Just continues to accelerate.
Every show level.
It is your social engagement was with every quarter class are there also kitchen is quite strong so.
Again, we're continuing to us as this quarter or maybe great you want to.
Neither irrespective because a lot it wasnt man.
Or two over there.
No I think I think you've gotta covered lives.
Good so it was that it did I get your question.
Yeah, I think I would just mentioned I think Asia continues to be you know and positive contributor <unk> flows are they just continue to even in a high to this produced positive.
Long term flows there's nothing sort of indicating that that's slowing down people. You know we're still launch in product people still are interested in the products that are the launch.
And it is broader than just China, I think Japan as well is beginning to sort of show up as a potential contributor with I'm going in so opportunities around fixed income in particular.
[noise] [noise] next question.
Thank you. Our next question comes from Kenneth Lee with RBC capital markets. Your line is helping.
Hi, Good morning, Thanks for taking my question just in terms of V.
I had a question you mentioned a there there's a lot of non cash items within your and your net income what's sort of like you. Your that's a view of ongoing to free cash flow generation for for the company and how could this potentially evolving in the near term. Thanks.
Yeah, so cash flow from operations in strong you know, we see sort of somewhere between and this is based on current March and levels. So again, you know somewhere between.
No in excess of nine 950, you know to a billion, though the cash flow from operations.
Going forward so even in the stress scenario, you know that that number Holden reasonably well Ah so.
That's that's a huge contributor and again the noncash elements. When you when you sort of add those back to earnings. So you get you get to those those types of numbers. So hopefully that gives you a sense of how much cash generation or we are providing just from from the business.
Right.
And just one follow up if if I may just in terms of eat the mass mutual wonder if you could just provide a little bit more detail in terms of that that approvals capital for I think you mentioned is real estates or alternative strategies.
You know what the potential time frames that we could see some some initial products and perhaps you could better frame do the opportunity you're expecting there. Thanks.
Colin we took occurs.
Hi, good too so.
I think as mentioned earlier mass mutual has contribute 425 million to chew or real estate strategies.
First of the non traded REIT strategy Oh.
Really targeting at the retail market.
We'll figure out the timing of when we launch that strategy as markets start to settle down in real estate and so you get.
Some sense of valued valuation.
But.
Capital investment and then they've also.
Contributed an anchor LT position and are one of our Asia real estate funds as well.
[laughter].
Great. Thank you very much.
Like your <unk>.
Thank you. Our next question comes from Robert Lee from KBW. Your line is I'll finish.
Great. Thank you thanks for taking all the questions and I'm sorry to go back to the.
Balance sheet questions, but just to clarify more.
So is it should be thinking in terms of using cash over this year obviously.
Quantity, but that.
How to chip away at the revolver of course, the year and then it kinda reload first quarter next year is that right way does.
I think about it.
Oh, Yeah in general Yes, I mean, this is obviously extraordinary times and I think if she certainly saying Oh other companies kind of draw fully on the on that so they just got cash that's not what we've done but I'd say a the normal sequence would be yeah. There was a normal draw a that happens I'm on the credit facility in the first quarter.
And then you know, we generally pay that down, but I'd say that you know with either right way to think about it and the cash flow that we generate would allow us to do that for sure would allow us to pay down the credit facility would allow us to as I mentioned, a fully paid back the forward commitments are still generate excess cash.
Okay, Great and then maybe follow up and I appreciate that.
Disclosure on the pipeline and quantifying it because it gives a sense of if we look and kind of that mix I know, there's a lot of.
Factor based strategies there you know how is it kind of.
Seen make some parents to the overall.
Your overall de rated Hadnt been line, a little lower I mean, how should we take him that.
That in the mix.
Yeah, let me they could come out of Oh, we have a provision but oh.
Oh.
[noise] feed grade Oh the rare.
So factor this [laughter] has very high margins, even though.
Yes.
Quite frankly same thing with.
Ladies business [noise].
But.
[noise] or give us yeah, I think the pipeline you know has a fee rate because of the growth in solutions. That's you know just a handful basis points below the firm's aggregate see rates. So it has come down a little better, but it's still you know sort of roughly in line with affirms overall.
[noise] take rate that was all I had.
Just a safe and healthy thing.
Thank you appreciate it should.
Thank you. Our next question comes from Alex I sang like Goldman Sachs. Your line is helping.
Good morning. This is Brian Bailey on behalf of Alex I'm actually had a question about Oh, if I MLP dynamics that was going on I was wondering is of the kind of 400 million accrual that you guys had taken.
About how much of that you expect your a couple and then if you have any color on a timing and whether the $400 million is you know the maximum we should be thinking about underwriting as an expense.
Yeah. So I think you saw in the quarter. We are basically made I mean, we reflected the full it was about 380, I think a little more than fitter and 80 million a that was reflected through a purchase price adjustment largely out of the small component that went through transaction integration. So that's been that's been reflected in terms of.
The.
Vacation for recovery I want to guess one it's gonna take a while in terms of ultimately figuring out what the the final final number is that we do believe that the number that we provided them in took through our balance sheet is is the right number obviously, but it isn't estimate and ultimately needs to get a confirmed as we go through a those before.
As detailed on the client by client a impacts.
That's not going to get known for probably you know many quarters.
And so you're probably talking more about 2021 sort of understanding of where that shows up and terms of recovery. We have no expectation that we're going to cover the substantial component or you know a majority of that number if not all it is still something where we have to work through insurance.
A you know sort of the claims that were putting true as well as Oh ultimately a you know the normal indemnifications that came as part of the transaction when we when we took the business over so right now at least in always thinking or there is nothing substantial or material that you need to think about in terms of net cash out as a risk.
Yes.
Got it okay. Thank you and then maybe just one more can you just a reminder, on any impact is a fee waivers on money market businesses behind it rolls or maybe another couple of months at how law lower yields on those products.
Yeah. It's it's an interesting dynamic I'd say you know we're fortunate in that the majority of our business is institutional money market business, which tends to be you know lower fee and so the topic of waving is not nearly as a relevant or impactful as it is if you had a large retail.
So I'm kind of component that said I think as we move into 2020, there probably you know could be some amount of fee waving that will need to do in order to maintaining certain you get a limited amount of yield on these products I don't think it's gonna immaterial amount of money I mean, it's probably in order of magnitude and again.
Is there sort of swags, a little bit a you know sort of could be a little bit more than $10 million on annualized basis, but you know we're we're still looking at those numbers right now, but it's not as I said, it's not that material for us given given our mix of business.
Got it thank you very much.
Got it.
Thank you. Our next question comes from Brennan Hawken like you'd be at your line is open.
[noise] [noise]. Good morning, Thanks for taking my questions. Most of them had been had been answered.
I guess are number one.
Could you remind us of or maybe update us about or any regulatory or other calls on a cash and liquidity at this point.
I mean, I I have not sure if I'm the only thing that I. Yeah. We all know is the amount of cash that we have a within or a European subgroup. A that's that's nothing different than it's been in the past that said it within the range of.
So the $700 million arrangement number, but it's a call it $700 million. So that has not changed a that's still kind of roughly the number beyond that there. There is not paying a certainly I'm aware of where we have any need from a regulatory perspective to provide cash or capital. So if there's something specific.
Right and you're getting <unk>. Please ask I'm I'm not sure if I'm not answering your question.
No you did I, just was curious whether or not that that number had changed or or whether or not there was just anything that we didnt know about so if you don't know about it.
<unk> debt [laughter] then.
There is nothing else. It's the same same old thing.
Yep, good enough cool and then I'm thinking about the Paydown plans I appreciate the comments on how you guys you long term debt to EBITDA in that ratio E D increase or the drawdown of the half billion for the revolver to fund you know the the obligation that you guys had coming up is.
Is the idea there that that that's going to be a priority to pay that down first or does the plans around the revolver.
Rolled into the overall plans around long term debt or is that thought of separately.
Well, we actually have the capacity to pay it down so I think it's it's a it's a flexibility topic as they wouldn't be rather pay down a the revolver or would be rather keep cash.
I don't know, it's who were at this point ready to commit.
So the bad news to the timing of to pay down or when we wouldn't pay that down.
I would say that Oh, we are going to in terms of a net debt perspective, it's effectively paid down you know as we get into the end of 2020 I'm. So.
You should you should think of it that way or how we actually manifest itself I think we're still looking at it but I just.
No again reiterate a point if there were just printing facility. We think that is absolute most important thing to do.
Yes.
It was greater clarity as far as you know the message take away is we have the capacity to pull any one of those levers and when we have greater clarity to pull that lever that we think it was most impactful that oh, yes to the organization.
Yeah that that is clear and very sensible. Thank you I'm, just hoping to squeeze in a follow up here. The three D. 80 million Bucks I think it was Dan <unk>, who asked about that initially eat a lot of that seems to be based on and I understand where we're not really on terrafirma.
Everything that's going on with Covance or on a few different levels how should we.
Think of are you going to get an update us as you continue work through thinking about how much of that would go from natural current environment changes to more structural <unk> expense declines or should we is there a certain portion of that that we can start to think about as a.
More structural decline in the expense base.
Yeah, So <unk>.
As long as you know our action is very similar to what we did just or financial crisis proceed as you can check the orders I should say employs [laughter] shareholders. That's exactly what we did add it was all those natural for us is effectively offsetting very savvy.
Race.
Really some securities.
Some flexibility that's.
We right now, it's why not atypical what you're going to hear from all our peers.
We had to be another physician were coming out.
Here's what we called me too so look at Rader more permanent operational.
Opportunities to a great ongoing.
See organization.
We were anytime we got into various take care.
Oh this the challenge we're not sure it's back to that.
We are greater clarity because of [noise].
Well, we come out of that absolutely sure everybody, but again I just want to come back to we don't want to do the driver doing it and we had already started.
<unk>.
As a.
<unk>.
Oh, yes things are so yes, it will definitely give you clarity as as we got through this no question Brendan.
Okay. Thanks, Thanks, Thanks for taking all the questions really attrition absolute yeah.
Thank you our last question comes from Michael Cyprys <unk> Morgan Stanley. Your line is open.
Hi, This is actually Stephanie filling in for Mike I wanted to get your updated views on E.S.G., maybe on do you think the environment today lend itself to increased demand for industry products further in the industry broadly speaking and then maybe within him back out do you see an uptick in demand and any sort of opportunity you see from here on the yesterday.
Thank you.
Yeah.
I'll, let that I'm at the time.
Ah person.
Andrew to speak to it.
Oh, great or the middle.
So.
I think there's a question and I think it depends on what the where he said.
He is to use just absolute necessity.
That's the organization deeply engaged and is or.
Absent business, especially in Europe, because you are a.
Very strong.
Our credibly just bearish is a good he likes your United States and also a Asia, but whatever service organization.
We are deeply engaged as I'm sure you'll see capabilities and those are very.
Various offers but you want to start the some of the they talk about or.
Yeah.
So.
Yeah, No sure I'll make a couple of comments and others may want to as well.
I think this environment.
And we're positioned for it is probably going to create more demand around the S.G. and just more momentum.
I go beyond product I know your question a bit on that we certainly think there'll be Ah, yes, you focus product and we've been building that are have built that and we'll continue to look at it I think that.
Bigger area that we're focused on and Greg might want to comment on it is how we're.
Embedding, yes, she into fundamental strategies.
As a factor of the way that that they're looking at that we're looking at act in investments and I think that's a growing expectation of of all of our investors I'm sorry clients around the world. So I think that's an area of focus for us too.
Lastly, I think there's more and more as people are putting together asset allocations and portfolios at the retail level, it's going to continue to be a factor that drives that drives those aspects to so that I think we're seeing it on all fronts.
Maybe while people are trying in various environments right now you may see a short slow down but in a in the medium or long run I don't see any and I don't see about any of that abating.
[noise], Greg we so maybe the only thing I'd add to the others like.
Take that you know the focus that we're seeing this from a lot of the from participants overall and there's just a tremendous focus [laughter] well emanated, but in Europe I think we're seeing that in a lot of discussions we're having with clients in Asian clients in North America overall, and so that's coming in the form of on demand and we've got.
You know a number of products.
Okay. That's good that's amendments to the stem from things that we're doing at our alternative business suit things, we're doing in fixed income and other areas. So we have a wonderfully strong capability, we think in E.S.G. and so we're trying to match up that capability.
To the point that after method and embedding those into our investment teams and making sure that.
We're kinda proactively really not just touching the surface on E.S.G., but really embedding that in the things. We can do from an investment standpoint to make decisions says we're going to cause for Theyll see mandates overall, so we've got a strong capability. We've got increased demand. We've got a lot of products that we've already put into the marketplace.
Well maybe is sold for a couple of weeks in light of what's gone on the environment.
You know once once we get through this which we will well that's a man we think will come back online and we're well prepared to be able to handle everything.
[laughter] colonnades anyone that is usually one of the.
No I just reinforce the points that were made its of course skill and I think as Andrew mentioned U.S.G., both as a product, but equally importantly, maybe more importantly, as a factor that can be applied across portfolios is a is true critical importance in fact.
Our U.S.G. capabilities have been core do a number of our wins, particularly in the solution space, where would that ability was what's critical wind standpoint, so we feel quite good about our capabilities.
So.
That was last question.
Again I appreciate everybody.
Most engaging oh, we chose to.
[noise] [noise] [noise]. This that's concludes today's conference. Please disconnect at this time.